Food & Beverage

Increase in average DWC driven by growing inventory levels.

Despite challenging trading conditions influenced by volatile global commodity markets, weather and rising energy costs, 82% of our sampled companies achieved EBITDA growth in 2018.

While earnings grew, the cash tied up in working capital also increased. The average DWC across the sample increased by 2.6 days to 95.9 days in 2018. This was primarily driven by an 11.7 day increase in DIO, with two thirds of companies in our sample holding inventory for longer. DSO and DPO remained relatively stable. We note that 67% of companies that were able to shorten collection cycles (DSO) also reduced DWC, showing a clear correlation between good customer / debtor management and better overall working capital performance across the sector.

Inventory management remains the main driver of working capital performance for Food & Beverage companies. Consistent with the prior year, the sector reported the highest DIO and highest DWC of all sampled sectors in 2018. It is important to note that Food & Beverage companies are typically required to manage a range of logistical functions (including manufacturing, packaging and distribution) and seasonal / market factors that impact their supply chains and working capital loads. An example of this within our sample is Select Harvests (97.5 day increase in DIO), which held additional tonnages of inventory to take advantage of favourable commodity prices and to provide product for its new almond processing facility.

Despite the increase in average DWC across our sample, there were some companies that showed considerable improvement in 2018. Bellamy’s Australia recorded the largest reduction in DWC of 56.0 days, reversing an increase in DWC in 2017. This was achieved through executing a turnaround plan that delivered top-line growth alongside better customer and supply terms and lower inventory levels. The a2 Milk Company also recorded a 19.6 day reduction in its DWC, the second consecutive year of strong performance.